Facebook: Friends with Money
The social network taps a fresh source of funds for $100 million and will buy more servers to support its growth in users and applications — Facebook is about to stuff more cash into its already full coffers. Having raised $360 million in the span of seven months …
Context & Ripple Effects
Facebook’s $100 million raise extends a funding path that included an earlier $25 million round in 2006. The immediate use—more servers—ties financing directly to the service’s expanding user base and third-party applications.
The company’s 2006 third-party website API and its newly announced Facebook Connect position infrastructure capacity as a prerequisite for extending Facebook beyond its own site. Its earlier stock-options coverage also indicates that capital formation and employee incentives were becoming connected parts of the company’s growth plan.
First-order effects
- Facebook can direct the fresh $100 million toward server capacity needed to support more users and applications, rather than constraining growth to its existing infrastructure.
- Third-party developers building on Facebook gain a better-funded host platform, while Facebook assumes the capital burden of scaling the underlying service.
Second-order effects
- MySpace faces a rival able to pair platform expansion with dedicated infrastructure spending, raising the cost of competing for users and application activity.
- Server and related infrastructure suppliers gain Facebook as a capitalized growth customer as the company converts financing into capacity.
Third-order effects
- Social-network competition is becoming partly an infrastructure-finance contest: platforms with access to capital can support larger user and developer ecosystems, reinforcing scale advantages.
- If third-party integrations continue to drive usage, the leading platforms’ server spending and developer APIs may become mutually reinforcing barriers for smaller social networks.
The trend: Consumer internet platforms are turning outside capital into infrastructure capacity and developer ecosystems, concentrating advantage among networks able to finance scale.